Wednesday, February 03, 2016

Chicago Public Schools forced to pay usurious rate for $675 million loan

Penn School, West Side

Decades of shortchanging pension payments, borrowing to pay off old loans, as well as utter incompetence have yielded their bitter fruits for Chicago Public Schools, which also fails in educating Chicago's youth.

Chicago's schools are offering to pay as much as three times what a top-rated government would shell out for most of a $675 million loan as the cash-strapped district revives a deal that was delayed after investors asked for more time to evaluate the securities.

About $615 million of tax-exempt securities due in 2044 are pricing for a preliminary yield of 8.5 percent and about $60 million of debt due in 2026 is pricing for a preliminary 7.75 percent, according to four people with knowledge of the deal who requested anonymity because the pricing isn't final. The top yield is about 5.8 percentage points more than benchmark municipal debt that matures in 29 years, data compiled by Bloomberg show.

"They're in very severe financial straits," said Dan Heckman, a senior fixed-income strategist in Kansas City at U.S. Bank Wealth Management, which oversees $128 billion. "This is just an effort to hopefully buy some time so they can continue to get their house in order but what a steep price they're paying."

The sale by the Chicago Board of Education, whose credit rating has been cut below investment grade, was originally set for about $875 million, including $79 million of taxable debt, on Jan. 27, only to be postponed after the tax-exempt bonds were offered for yields reaching 7.75 percent. Forrest Claypool, the board's chief executive officer, told reporters Tuesday at a press conference that it's been rescheduled.

The CEO of CPS is Forrest Claypool, who says "We have good momentum with our investors." It may not be good, but falling out of a tall building certainly is momentum.

2 comments:

FTA: "buying time to get their house in order" may not be the actual reason. More likely it's just kicking then can further down the road while rewarding the unions with another usurious pension payment.

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